The COVID Era Inflation Surge: Causes, Consequences, and Policy Lessons

In the wake of the COVID-19 pandemic, inflation surged in the United States and across much of the globe. In the United States, the 12-month change in prices, as measured by the personal consumption expenditures (PCE) price index, rose to a peak above 7 percent in mid-2022, marking the most significant outbreak of inflation since the early 1980s.1 Inflation also reached levels not seen in decades across much of Europe, the United Kingdom, and a range of other advanced economies and emerging markets, as shown in figure 1. The outbreak was particularly unsettling because it followed 40 years of generally low and stable inflation in many of these countries. Inflation has receded markedly from its peak in most economies. In the euro area, it has returned to the European Central Bank’s target, but in many other countries, it remains above target, and concerns about the durability of the disinflation persist.